Accessory Industries Has 2 Million Shares of Common Stock Outstanding

question 99

Multiple Choice

Accessory Industries has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling for $22 per share, the preferred shares are selling for $10.50 per share, and the bonds are selling for 96 percent of par ($1,000) , what would be the weights used in the calculation of Accessory's WACC for common stock, preferred stock, and bonds, respectively?

• A) 33.33 percent, 33.33 percent, 33.33 percent
• B) 29.23 percent, 6.98 percent, 63.79 percent
• C) 64.52 percent, 32.26 percent, 3.22 percent
• D) 17.12 percent, 8.17 percent, 74.71 percent

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Definitions:

Free Cash Flow

The amount of cash generated by a business after accounting for capital expenditures such as buildings or equipment, indicating the company's ability to generate additional revenues.

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment to improve its long-term operations and growth.

Cash Dividends

A portion of a company's earnings distributed to shareholders in the form of cash.

Direct Method

A way of preparing the cash flow statement where actual cash flow information from the company’s operations is directly reported.